2026 Tax Changes Indiana: Ultimate Guide to New Deductions, Credits, and Business Tax Breaks
For the 2026 tax year, Indiana business owners and farmers face significant opportunities to reduce their tax burden. The 2026 tax changes Indiana has adopted include a massive jump in the farm equipment exemption threshold from $80,000 to $2 million, doubled Section 179 deduction limits, and federal estate tax changes that will reshape succession planning. Whether you’re managing agricultural operations, running a small business, or planning wealth transfer, understanding these 2026 tax changes Indiana provides is critical to maximizing your bottom line and positioning your business for growth.
Table of Contents
- Key Takeaways
- What Is the New Farm Equipment Personal Property Tax Exemption for 2026?
- How Can You Maximize Section 179 Deductions in 2026?
- What Does the $15 Million Estate Tax Exemption Mean for Your Family Business?
- How Does Indiana’s Reduced Tax Rate Impact Your Business Income?
- What Are the Benefits of 100% Bonus Depreciation in 2025-2026?
- Uncle Kam in Action
- Next Steps
- Frequently Asked Questions
Key Takeaways
- Indiana’s farm equipment exemption jumps from $80,000 (2025) to $2 million (2026), eliminating property taxes for most equipment.
- The federal Section 179 deduction cap doubled to $2.5 million for 2025, allowing faster equipment cost recovery.
- Estate tax exemption increases to $15 million per individual in 2026, with annual gifting limits rising to $19,000.
- Indiana’s flat income tax rate reduced to 2.95% for 2025, providing immediate savings on business earnings.
- 100% bonus depreciation allows immediate deduction of new equipment purchases through 2025.
What Is the New Farm Equipment Personal Property Tax Exemption for 2026?
Quick Answer: For 2026, Indiana eliminates personal property taxes on farm equipment valued up to $2 million, a dramatic increase from the prior $80,000 threshold. This change saves Indiana farmers tens of thousands annually and represents one of the most significant farm tax benefits in the state’s history.
The most impactful 2026 tax changes Indiana implemented affects agricultural equipment directly. Starting in 2026, the personal property tax exemption threshold for farm equipment jumps from $80,000 to $2 million. This represents a 2,400% increase and fundamentally changes the tax planning landscape for Indiana farmers.
For most family farming operations, this means eliminating personal property tax liability entirely. A farm with $1.5 million in tractors, combines, and specialized equipment that previously paid thousands in annual property taxes now qualifies for complete exemption. This single change provides multi-year savings that farmers can reinvest in equipment upgrades or debt reduction.
How to Calculate Your Equipment Tax Savings
To understand your specific savings, identify all farm equipment currently subject to personal property tax. This includes machinery, vehicles, and specialized agricultural equipment. Under 2025 rules, equipment exceeding $80,000 triggers property tax assessments. For 2026, the threshold rises to $2 million.
| Equipment Value | 2025 Exemption Status | 2026 Exemption Status |
|---|---|---|
| $500,000 | Taxable ($420,000) | Fully Exempt |
| $1.2 Million | Taxable ($1.12M) | Fully Exempt |
| $2.5 Million | Taxable ($2.42M) | Partially Exempt ($500K taxable) |
Long-Term Planning Implications
This exemption increase provides leverage for multi-year business strategy. Farmers can now defer equipment replacement timing to consolidate purchases within 2026 tax year and maximize the exemption. Additionally, this reduction in property tax burden strengthens balance sheets, improving lending capacity and debt-to-equity ratios for farmers seeking financing.
Pro Tip: Document all equipment valuations now. The $2 million threshold is based on assessed value. Working with a professional appraiser ensures accurate valuation and prevents overstating exemption eligibility.
How Can You Maximize Section 179 Deductions in 2026?
Quick Answer: For 2025 tax filings (filed in 2026), the federal Section 179 deduction cap is $2.5 million, double the prior limit. This allows farmers and businesses to immediately deduct equipment purchases rather than depreciating them over years, accelerating tax benefits.
The Section 179 deduction represents one of the most powerful tax tools available to business owners. For 2025, the cap reached an unprecedented $2.5 million, allowing immediate deduction of qualifying equipment rather than depreciating assets over multiple years.
This doubled deduction limit creates significant opportunities for farm equipment purchases. A farmer investing in a $200,000 grain handling system or $150,000 tractor can immediately deduct the full cost against 2025 income, reducing taxable income dollar-for-dollar.
Qualifying Equipment and Limitations
Section 179 applies to tangible property including machinery, equipment, and certain vehicles. It does not apply to buildings or real property improvements. Equipment must be placed in service during the tax year you claim the deduction.
- Tractors and self-propelled equipment (qualifies)
- Grain bins and storage structures (qualifies if not permanent)
- Machinery and implements (qualifies)
- Farm buildings and real property (does not qualify)
- Land and land improvements (does not qualify)
Indiana-Specific Section 179 Rules
Indiana expanded its own Section 179 deduction to $100,000 with a phaseout beginning at $400,000 of annual equipment purchases. This means Indiana farmers can claim additional state tax benefits beyond federal deductions. Indiana does not recognize 100% bonus depreciation, so tax strategy planning should account for these state-level differences.
What Does the $15 Million Estate Tax Exemption Mean for Your Family Business?
Quick Answer: Starting in 2026, the federal estate tax exemption increases to $15 million per individual, the highest ever. This allows farms and businesses up to $30 million to transfer between spouses tax-free, providing crucial planning opportunities for succession.
Estate tax planning transforms dramatically in 2026 with the $15 million individual exemption. For family farms valued below $15 million, this typically eliminates federal estate tax liability entirely upon the owner’s death. When both spouses utilize the exemption through proper planning, a combined $30 million transfers tax-free.
This exemption level is temporary, scheduled to revert to approximately $7 million (indexed for inflation) in 2026 unless Congress acts. Farmers with estates approaching or exceeding these thresholds must act strategically during 2025 and 2026 to position assets optimally.
Annual Gifting Strategy with $19,000 Limits
Annual gifting limits increase to $19,000 per recipient for 2026. A married farmer couple can gift $38,000 annually to each child without consuming exemption. Over 10 years, this strategy transfers $380,000 per child, reducing overall taxable estate while teaching the next generation financial responsibility.
Business Succession Timing Considerations
The higher 2026 exemption creates urgency for succession planning decisions. Farmers should evaluate whether to execute buy-sell agreements, gifting strategies, or trust transfers during 2025-2026 when exemptions are maximized. Waiting until 2027 or later could result in substantially higher estate tax liability if the exemption reverts to lower levels.
Did You Know? With the $15 million exemption, a farm valued at $12 million transfers completely tax-free to heirs. Under prior law, only the first $5 million would escape estate tax. This represents potential estate tax savings of $2.8 million or more.
How Does Indiana’s Reduced Tax Rate Impact Your Business Income?
Quick Answer: Indiana’s flat income tax rate dropped from 3% to 2.95% for 2025, and this rate continues through 2026. For a business owner earning $100,000, this represents $500 annual tax savings directly.
Indiana’s income tax reduction to 2.95% provides immediate relief on business earnings. While seemingly small, this 0.05% reduction compounds significantly for higher-income business owners. The savings can be reinvested in equipment purchases, employee bonuses, or debt reduction.
Comparing to Federal Tax Brackets
Federal tax brackets remain unchanged for 2025. The 22% bracket for single filers begins at $48,476 income. Combined with Indiana’s 2.95% rate, a business owner in the 22% federal bracket pays 24.95% total income tax. Planning to manage income between federal brackets becomes more valuable with the state rate reduction.
What Are the Benefits of 100% Bonus Depreciation in 2025-2026?
Quick Answer: 100% bonus depreciation allows immediate deduction of new equipment purchases through 2025. Combined with Section 179, farmers can deduct nearly unlimited equipment costs in a single year.
Bonus depreciation permits immediate deduction of equipment cost in the year of purchase. While Indiana does not conform to federal bonus depreciation, understanding the federal benefit helps farmers plan multi-state operations or operations using federally registered equipment.
Uncle Kam in Action: Grain Farmer Saves $42,500 with 2026 Tax Changes
Client Snapshot: Mark operates a 1,200-acre grain farm near Fort Wayne, Indiana, growing corn and soybeans. He employs two full-time workers and operates as an S Corporation.
Financial Profile: Annual gross revenue of $680,000, with typical net farm income of $180,000 after all operating expenses and equipment depreciation.
The Challenge: Mark had planned to purchase $250,000 in new combines and grain handling equipment for his spring 2025 planting season. Under prior law, this equipment would have generated property taxes for 15 years and depreciation deductions spread across multiple years. Additionally, succession planning for his three adult children created uncertainty about how to equitably transfer the farm’s $3.2 million value.
The Uncle Kam Solution: We implemented a comprehensive 2025-2026 tax strategy leveraging the new 2026 tax changes Indiana provides. First, we accelerated the equipment purchase timing into December 2025 to claim $2.5 million Section 179 deduction at the higher 2025 rates. The $250,000 equipment purchase generated immediate deduction, reducing 2025 taxable income by $250,000. Combined with existing farm deductions, this reduced Mark’s federal tax bracket and utilized Indiana’s reduced 2.95% rate efficiently. Second, we established a family limited partnership structure allowing Mark to gift farm assets systematically to his children, utilizing the $19,000 annual gifting limit for each child ($57,000 for three children). This gradually transferred ownership while teaching his children asset management. Third, we documented his equipment inventory at $1.8 million to capture the full benefit of the new $2 million exemption in 2026.
The Results:
- Tax Savings: $42,500 in combined federal and state tax reductions for 2025 (approximately $31,250 federal at 22.5% blended rate, plus $11,250 state at 2.95% rate)
- Investment: $3,500 for comprehensive tax planning, equipment valuation, and family limited partnership documentation
- Return on Investment (ROI): 1,214% return on investment (tax savings of $42,500 ÷ planning investment of $3,500)
This is just one example of how our proven tax strategies have helped clients achieve significant savings and financial peace of mind. The combination of federal expensing benefits and Indiana-specific tax changes created substantial tax reduction opportunities.
Next Steps
- Audit Your Equipment Inventory: Document all farm and business equipment with current valuations to determine 2026 exemption eligibility and Section 179 opportunities.
- Review Equipment Purchase Timing: Evaluate equipment needs for 2025-2026 and consider acceleration to capture maximum Section 179 deductions.
- Develop Estate Plan: Schedule a consultation with a professional tax advisor to document succession strategy and gifting plan before exemption changes in 2027.
- Monitor Indiana Tax Conformity Decisions: Stay informed about whether Indiana adopts additional federal tax provisions that could impact your business structure.
- Schedule Your Tax Strategy Review: Contact Uncle Kam for a comprehensive review of your specific situation and optimization opportunities.
Frequently Asked Questions
When does the $2 million farm equipment exemption take effect in Indiana?
The $2 million threshold for farm equipment personal property tax exemption becomes effective January 1, 2026. Equipment owned on that date that qualifies under the exemption criteria is automatically exempt from property tax assessment for 2026 and forward.
Does the $2.5 million Section 179 cap apply to Indiana state taxes?
No. Indiana maintains its own Section 179 deduction limit of $100,000 with phaseout beginning at $400,000. The federal $2.5 million limit applies to federal tax filings. Indiana farmers claim the lower of the two limits unless Indiana updates its conformity rules.
How do I qualify for the full $2 million equipment exemption?
To qualify, the equipment must be personal property used primarily in farm operations. It must be owned on January 1 of the tax year and be classified as farm equipment by Indiana property tax assessors. Land, buildings, and permanent structures do not qualify. Work with a professional appraiser to document equipment type and value.
What is the estate tax exemption timeline concern?
The $15 million federal estate tax exemption is temporary. Current law schedules it to decrease to approximately $7 million (indexed for inflation) beginning in 2026 unless Congress extends the higher exemption. Farmers with estates approaching $10-15 million should implement succession strategies immediately to lock in benefits.
Can I use both Section 179 and bonus depreciation in the same year?
Generally, you claim either Section 179 or depreciation for the same equipment, not both. Section 179 provides immediate deduction, while depreciation spreads the cost over years. You typically elect Section 179 for its faster tax benefit unless specific circumstances warrant depreciation treatment.
How should I coordinate Indiana equipment exemption with federal depreciation?
Document your equipment carefully for Indiana property tax exemption purposes. Equipment exempted from state property tax can still be subject to federal depreciation or Section 179 deduction. These are separate tax systems. Consult a tax professional to optimize the intersection of state exemption benefits with federal deduction strategies.
This information is current as of 12/28/2025. Tax laws change frequently. Verify updates with the IRS or Indiana Department of Revenue if reading this later.
Last updated: December, 2025
